Case Note & Summary
The appeal was filed by M. Ramakanth, an operational creditor, against the order of the National Company Law Tribunal, Hyderabad, which dismissed his application under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency Resolution Process against M/s. Nagarjuna Fertiliser and Chemicals Limited, the corporate debtor. The appellant was employed by the corporate debtor and claimed performance pay at 15% of his salary, which he alleged was due and unpaid. The NCLT rejected the application on the ground that the claim for performance pay did not constitute an 'operational debt' under Section 5(21) of the IBC. The appellant argued that performance pay was part of his employment terms and thus an operational debt. The respondent contended that performance pay was discretionary and not a vested right. The NCLAT upheld the NCLT's decision, holding that performance pay, being discretionary and not based on provision of goods or services or employment, does not fall within the definition of operational debt. The appeal was dismissed, and the impugned order was affirmed.
Headnote
A) Insolvency and Bankruptcy Code - Operational Debt - Section 5(21) IBC, 2016 - Performance Pay - The claim for performance pay, being discretionary and not a vested right, does not fall within the definition of 'operational debt' under Section 5(21) of the Insolvency and Bankruptcy Code, 2016, as it is not in respect of provision of goods or services or employment. Held that the Adjudicating Authority rightly rejected the application under Section 9 of the Code. (Paras 1-13)
B) Insolvency and Bankruptcy Code - Corporate Insolvency Resolution Process - Section 9 IBC, 2016 - Maintainability - An application under Section 9 of the Insolvency and Bankruptcy Code, 2016, is maintainable only if the debt claimed is an 'operational debt' as defined under Section 5(21). Since performance pay is not an operational debt, the application was not maintainable. (Paras 1-13)
Issue of Consideration
Whether the claim for performance pay by an employee constitutes an 'operational debt' under Section 5(21) of the Insolvency and Bankruptcy Code, 2016, entitling the employee to initiate Corporate Insolvency Resolution Process under Section 9 of the Code.
Final Decision
The appeal is dismissed. The impugned order of the NCLT, Hyderabad, dated 02.05.2024, is affirmed.
Law Points
- Operational debt defined under Section 5(21) of IBC
- 2016 requires debt in respect of provision of goods or services or employment
- performance pay is discretionary and not a vested right
- hence not an operational debt
- claim for performance pay cannot be the basis for initiation of CIRP under Section 9 of IBC
- 2016.
Case Details
2024 LawText (NCLAT) (01) 74
Company Appeal (AT) (CH) (Ins) No. 213/2024
Justice Sharad Kumar Sharma, Member (Judicial)
Mr. M. Ramakanth, Party-in-person; Mr. Avinash Desai, Senior Advocate for Ms. Vala Srihitha, Advocate
M/s. Nagarjuna Fertiliser and Chemicals Limited
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Nature of Litigation
Appeal against order of NCLT dismissing application under Section 9 of IBC for initiation of CIRP.
Remedy Sought
Appellant sought to set aside the impugned order and allow his application under Section 9 of IBC.
Filing Reason
Appellant claimed performance pay as operational debt and sought CIRP against corporate debtor.
Previous Decisions
NCLT, Hyderabad, dismissed CP (IB) No. 132/09/HDB/2020 on 02.05.2024, holding that performance pay is not an operational debt.
Issues
Whether performance pay constitutes an 'operational debt' under Section 5(21) of IBC, 2016.
Whether the application under Section 9 of IBC was maintainable.
Submissions/Arguments
Appellant argued that performance pay was part of his employment terms and thus an operational debt.
Respondent contended that performance pay was discretionary and not a vested right, hence not an operational debt.
Ratio Decidendi
Performance pay, being discretionary and not a vested right, does not fall within the definition of 'operational debt' under Section 5(21) of the Insolvency and Bankruptcy Code, 2016, as it is not in respect of provision of goods or services or employment. Therefore, an application under Section 9 of the Code based on such a claim is not maintainable.
Judgment Excerpts
The brief backdrop of the controversy, as involved consideration in the instant Company Appeal, being Comp App (AT) (CH) (Ins) No.213/2024 as submitted by the Appellant/Operational Creditor is that the Respondent, that is, the alleged Corporate Debtor (CD), is a company which stands registered under the name and style of M/s. Nagarjuna Group, which consists of various other subsidiary entities.
The Appellant was appointed, as an Assistant Company Secretary, as back as on 16.01.1986, in a group company, Nagarjuna Hire Purchase Ltd. He was later on transferred to the holding company i.e., M/s. Nagarjuna Investment Trust Limited, as Assistant Company Secretary and later was appointed as its Company Secretary, and he was transferred to yet another unit of the group, that is, M/s. Nagarjuna Fertiliser and Chemicals Limited, which is the alleged Corporate Debtor, where he continues to work till he superannuated on 30.04.2018
The case of the Operational Creditor, the Appellant herein is that by an office memorandum dated 08.09.1994, and consequent to the order of transfer, the Operational Creditor was appointed as the Assistant Company Secretary of the Corporate Debtor vide appointment order dated 12.09.1994. The Appellant contends that, he would be entitled for the payment of performance pay @ 15%
Procedural History
The appellant filed CP (IB) No. 132/09/HDB/2020 before the NCLT, Hyderabad, under Section 9 of IBC, seeking CIRP against the corporate debtor. The NCLT dismissed the application on 02.05.2024, holding that the claim for performance pay is not an operational debt. The appellant then filed the present appeal before NCLAT.
Acts & Sections
- Insolvency and Bankruptcy Code, 2016: 5(21), 9
